Beyond market share v2

BEYOND MARKET SHARE – New Marketing Vision, Trends and Mindsets

- From No-Profit Zones, Marketing Measurement Masochism and the Parallel Lines Test to Movement Marketing and Value Share

Professor Luiz MoutinhoFoundation Chair of MarketingAdam Smith Business SchoolUniversity of Glasgow,Scotland.

WHAT THE HELL IS “MARKET ORIENTED”?

“The only way to get out of this mess if for us to become customer driven or market oriented. I’m not even sure what that means, but I’m damn sure that we want to be there. I don’t even know whether there’s a difference between being market driven and customer oriented or customer driven and market oriented or whatever. We’ve just got to do a lot better”.

“I said market oriented, not MARKETING ORIENTED! It’s unclear to me what we get for all the overhead we have in marketing. Those sexy brochures of yours sure haven’t been doing the job”

Companies typically make two kinds of mistakes. Some get caught up in the excitement and drive of making things, particularly new creations. Others become absorbed in the competition of selling things, particularly to increase their market share in a given product line.

Both approaches could prove fatal to a business. The problem with the first is that it leads to an internal focus. Companies can become so fixated on pursing their R&D agendas that they forget about the customer, the market, the competition. They end up winning recognition as R&D pioneers but lack the more important capability – sustaining their performance and, sometimes, maintaining their independence.

The problem with the second approach is that it leads to a market-share mentality, which inevitably translates into undershooting the market. A market-share mentality leads a company to think of its customers as “share points” and to use gimmicks, spiffs, and promotions to eke out a percentage point gain. It pushes a company to look for incremental, sometimes even miniscule, growth out of existing products or to spend lavishly to launch a new product in a market where competitors enjoy a fat, dominant position. It turns marketing into an expensive fight over crumbs.

Traditional Strategic Thinking argues that greater market share equals greater profit. But bigger is not necessarily better; in many cases, it can actually be worse. As most companies use it, market share can be misleading and even a dangerous measure. The definition of market share, however, is strongly correlated with Financial Performance and Value Creation.

• Think beyond the current business offerings.• The company’s weighted average relative market share (MS)• Apply the Value-Creation test.• Not all growth is good. In fact, some growth actually destroys

value.

IS MARKET SHARE DEAD?

Where is the profit zone today? Where will it be tomorrow? The profit zone is the area of your economic, societal and human neighbourhood where you are allowed to earn a profit through value delivery!

As a manager, you were schooled in how your pursuit of market share and growth automatically places you on a direct route to business success.

However, these formerly direct roads have become mazes riddled with traps, wrong turns, and dead ends. Many large companies, after taking the turn towards market share and volume growth, have only hit a profitless wall.

Market share was the grand old metric, the guiding light, the compass of the product-centric age. Profitability began to be detached from market share.

Trends and developments in society – social values, consumer behaviour, competitive structures, business ecosystems, social media and social networks, technology, sustain… agility -force us to think harder about – or to completely rethink market share as a predictor of profitability

Am I Managing for Volume Growth or Value Growth?

The two most valuable ideas in the old economic order, market share and growth, have become the two most sensitive ideas in the new order. To apply these ideas appropriately (and safely), you must understand the rise of no-profit zones in the economy.

No-Profit Zones

Over the past two decades, advances in industrial technology, innovation in business design, increases in global competition, and tremendous improvements in information technology have altered the game.

Simultaneously, information has become more accessible to customers, allowing them to conveniently shop for the best deals and the best prices. This forces all contenders to match price reductions or lose customers to a lower-priced competitor. It creates no-profit zones.

Today, no-profit zones are everywhere, and they are growing. The map of the economy is covered with more and larger patches of unprofitability. No-profit zones are the black holes of the business universe. Paradoxically, the devout pursuit of market share may be the single greatest creator of no-profit zones in the economy.

A senior manager at an equipment manufacturer captured perfectly the spirit of market share myopia that dominated the thought processes in the age of market share.

We are all focused on market share, on units, units, units. Units sold vs. competitors’. Units sold this quarter vs. same quarter last year. We focus on every single point, or fraction of a point, of market share gained, or lost.

And it’s not just our management team. It’s our competitors’ management teams.

All too often, the vigorous pursuit of market share is done at the expense of business design innovation. Market Share leadership in a no-profit zone, or high market share with the wrong business design, is more of a curse than a blessing.

There are three curses of growth. First, high growth with a bad business design destroys value faster. Second, besides being riskier, high growth is much harder to manage. The euphoria of being in a high-growth environment blocks out the reality that growth creates a much higher management challenge.

Managing in a downturn is hard, but managing high growth intelligently is much harder. You’re tempted to overbuild capacity, add infrastructure, headcount, lots of fixed costs. Then when the growth waters recede, you’re stuck in a no-profit zone.

The third curse of growth arises when a business grows by stretching its business design to serve customers that the business design was not intended to serve. Once again, the end result is a no-profit zone.

Value migrates towards activities that are more important to customers – activities where profit is possible .Yesterday’s profit zones are becoming, with increasing frequency, today’s no-profit zones.

The investment community is also downgrading the “old order” market share stocks and reallocating its investments to the “new order” reinventor companies. Systematically the new order companies reinvented their business design to stay relevant to customers and society, and to move into new profit zones.

Where is the Profit? In yesterday’s world, the answer was: with the player who has the highest market share. In today’s world, the answer is: with the player who has the best business model, a model designed for customer relevance and high profitability.

Thinking about profitability is not easy. The profit zone, the arena in which high profit is possible, keeps changing and keeps moving. The customer does not stand still, and the business design must respond, even better, anticipate!

In this new economic order, characterized not by equilibrium but by fluidity, customers and profit zones always shift.

• Most financial indicators are backward looking• Financial performance tends to be measured over the short-

term and induce short -term “fixes”. Necessary, but not enough. Three important reasons why financial measures alone are not enough:

–They may not capture all of a company’s strategic objectives–Bottom-line measures are after the fact–They are not very diagnostic

MARKETING MEASUREMENT MASOCHISM

• Models that just skim the surface of tactical optimisation by looking only at market-based and media measures, and ignoring the society – and market – dynamics (uncontrollable factors), thereby overstating the impact of marketing in very suspicious ways.

• Models that look backwards perfectly but are of little value if one is making decisions for the future.

• Models that regularly seem to reward short-term demand-generation tactics rather than longer-term brand equity TRUE value.

• Models with high “base” compositions which explain only a small portion of the in MS, volume or profit.

MEASUREMENT

…As times goes on, measurement technology just keeps getting better and better. More specific. More precise. More certain.

…And, so, too, should be our understanding of the world around us!

…Predictive Value is Emerging!

Sustainable growth-SOCIETY

Customer Value

Organisational RelationshipsStrategy – Systems - People

Determinants of Company Performance

Industry AdvantageStrategic Assets Core Competences

MARKETING METRICS

….”He who has the data, rules!”

….4 types of data kept in company silos.

….Marketing owns the customer data, HR owns the employee feedback, DQuality owns the monitoring data and OM creates and drives the daily metrics.

….They all protect their data. Unwilling to share or allow others to control the analysis,…. impeding the development of a true customer-driven value delivery platform.

….Calibration and consistency of accurate standards is difficult.

Instead of developing divisional and departmental supporting metrics, the company should create cross-functional metrics based on its value delivery systems (end-to-end business processes). These cross-functional metrics should be driven down to specific roles that employees play within each delivery system.

In this age of head spinning change, we are tempted to look at individuals as just “likes” or as “decimal points that add up to big data”.

While it is great to think that one day all marketing will be entirely analytical and based on some algorithm somewhere in the computing cloud, we have to remember that we live and work in the real world of human needs, wants, desires, psychology, sociology and physiology. If managers can learn to manipulate? these variables, they may very well create the next golden rectangle.

Managers (at least the human ones)

Move on to something more innovative, sophisticated and robust:

• Artificial Intelligence (AI)• Agent-based Modelling (ABM)• Systems Dynamics (SD)• Biologically Inspired Intelligence (BII)

But only……with transparency, trust and credibility! (T2C)

Warning – Check your Credibility Chain.

SHAREHOLDER VALUE – TWO-SIDED COIN…

ONE SIDE

Shareholder Value is a much hyped phrase, and inevitably invites questions about other stakeholders….

• Internally it is measured by “economic profits” which can also be known as economic value added.

• EP measures the future cash flow• Shareholder value is a long-term measure…? Is it?• It takes into account the return that shareholders expect from you and so

focuses on exceeding their expectations (the cost of equity).

THE OTHER SIDE STAKEHOLDER VALUE-TWO-SIDED COIN….

• Forget the focus on shareholder – EPS• Shareholder value is mostly a meaningless concept to most

employees, customers and society.• Shareholder value never creates passion and human

involvement.• There has to be more to life than making your numbers…• We have to find ways to give people meaning well beyond just

money.

The “Parallel Lines” Test

Value in my life

Personal Productivity

“Solutions Assembly”

Family, Friends and Community

Emotional Authenticity

Passion Partnership

Earnings per Share (EPS)

Shareholder Value

“Customers”

Profitability

Growth

Companies focus onIndividual focus on

+ …

From Company-Driven Metrics• Cost per lead (CPL)• Cost per click (CPC)• Customer Behaviour Maps (Recency)• Visual Customer Maps• Return on Ad spend (ROAS)• The Drilling Down Method• Life Cycle Metrics• Mapping Visitor Conversion• CRM Analytics: Micro vs Macro• Customer Model: Recent Repeaters• Keyword Effectiveness Index (KEI)

(SEO) ...to Consumer-Driven Intermediate Measures

• Cost per involved reader/viewer/listener

• Cost per earned attention• Cost per touch• Cost per touching

• Share of Needs Models Marketing Performance

The Only Good Metric is a Stakeholder Value-Driven Metric

Everyone is talking metrics these days as if it were some new discovery. Yet with all the dialogue there still seems to be a bit of confusion as to how to create meaningful metrics. Maybe it is because so many managers just do not get it. It is easy to find things to measure; it is altogether different to measure the right things. So what are the right things to measure in an organisation? The things to measure are those things that make you successful. And what makes a company successful? Simple, delivering value to stakeholders (customers, owners and employees to name the big three). Therefore, it only stands to reason that all metrics be stakeholder-value driven.

Stakeholder Metrics• Engagement Metrics• Change Management• Expectations Management• Humanity of the Project• Share of Needs Models• Memetics Research• Engagement Index ( e.g., Involvement +

Interaction + Intimacy + Influence)• Transparency Index • ( True) Relationship Index

Traditional marketing has given way to “movement marketing” and that this is the new way forward for anyone trying to gain market share and earn customer long-term sustainable preference(LTSP). It can provide a way for business to connect more deeply with culture, address social issues, get close to customers and their deepest interests, and maybe even be part of something worthwhile and important.

Cultural movements involve a likeminded group of people banding together around a shared idea or passion, and usually trying to bring about some type of change.

For almost every passion you can think of there is a movement. This proliferation of mini-movements is something new.

But there are also social reasons why movements are on the rise. While people are more connected in one sense, they are also more disconnected -from neighbours and from some of the traditional community hubs of yesteryear. Moreover, people seem to be looking for meaning and purpose in a world that has become increasingly turbulent and unsettling.

As the world continues to get more volatile and complex in the years ahead, we can expect movements to become increasingly important.

The key for marketers who want to ride this wave is that they have to stop talking about themselves and their products, and start listening to what people are talking about and are passionate about.

If a company is going to tap into a movement it needs authenticity.

This new model of marketing is primarily built around listening, sharing, facilitating: If you do that, people will trust you enough to let you be a part of their cultural movement.

And when that happens, your brand will have earned the kind of respect and credibility with these people that advertising just cannot get you. Your message will be shared among people who trust and listen to one another a lot more than they trust commercials. This is why that, increasingly, in the future, the movement will be the medium.

Ethos

ROI

ROInsight

ROInvolvement

ROExperience

ROEmotion

ROEngagement

ROIntegrity

ROEthos

ROI does not mean what you think it does…

Will meaningful marketing take over?

There is a new evolution in marketing that is about improving customers’ lives. It is called meaningful marketing or marketing with meaning. Economic and social forces are colliding to fuel the staying power of meaningful marketing.

Marketing with meaning is about improving customers’ lives through the marketing itself.

Will meaningful marketing take over?

Why does it make business sense?

Meaningful Marketing not only improves customers’ lives, it also impacts the bottom line. According to research, companies that practice meaningful marketing are twice as likely to deliver sustained success and four times less likely to require significant price discounting.

Profit Sharing – The Performance Marketing Model of the Future

• Company• Shareholders• Employees• Customers• Community• Society

A simple Formula for (MS) Success:

Action value created

Ɛ (npz,f,m,cfm,cds)+--------Insight resources consumed

No-profit zones

Fluidity

Measurement

Cross-functional metrics

Consumer-driven solutions

(MS) Success =

Perception

It finally happened: market share is dead and it has been replaced by value share!